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Equipment Leasing Case Study - Cummins
- 1. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 1 Cummins Inc. Implementing a Global Equipment Lease Management Program
- 2. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 2 Today’s Speakers Jay McGlynn Chief Revenue Officer LeaseAccelerator Neil Banwart Director - Corporate Treasury Cummins
- 3. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 3 Equipment Lease Management Equipment Leasing – A Big Challenge & Opportunity
- 4. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 4 Lease Accounting – A Hot Topic “Biggest-Ever Accounting Change” “$3.3 Trillion Will Transfer On To Balance Sheets” IFRS PWC
- 5. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 5 Potential New Lease Challenges Accounting and Sarbanes- Oxley Compliance Equipment Lease Management The pending rule change may require and or expose the fact that many Fortune 500 companies have significant financial waste of dollars on due to the mismanagement of their equipment leasing programs. Lease Accounting moves from the dark corner of the financial footnotes to the bright lights of the balance sheet.
- 6. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 6 Equipment Lease Management Overview of Cummins’ Business
- 7. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 7 About Cummins 46
- 8. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 8 Cummins Revenue by Segment 2015 Results Sales: $19.1 billion EBIT1: $2.4 billion EBIT%: 12.5% ▪ Strong product portfolio and global partners ▪ Macro growth trends play to Cummins' strengths ▪ Disciplined investment for growth ▪ Demonstrated technology leadership 2015 Revenue by Segment 1 Q4'15 EBIT excludes $211 million of impairment of light-duty diesel assets and $90 million of restructuring actions and other charges.
- 9. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 9 Geographic Diversification ▪ Capitalizing on global emissions regulations ▪ Strong geographic diversification and leadership across multiple end- markets ▪ Global distribution network with presence in more than 190 countries and territories 2015 Revenue by Marketing Territory
- 10. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 10 Partnerships and Customers
- 11. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 11 Technology Leadership Fuel Systems Turbo Technologies Filtration 78% 42% 35% 34% 25% 17% NA Truck HD Global Construction China Truck MD+HD Global Mining Emission Solutions * 2015 Estimates Engine market share* Controls and Systems NA Truck MD India Truck MD+HD
- 12. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 12 Global Distribution Cummins owned and Cummins joint venture Independent
- 13. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 13 Equipment Lease Management Cummins Equipment Leasing Program
- 14. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 14 Equipment Leasing at Cummins Trucks AutomobilesForklifts Networking Equipment Industrial Equipment Manufacturing Equipment Lab & Testing Equipment Building Systems Office Equipment Corporate Aircraft Computers
- 15. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 15 Why Does Cummins Lease? Corporate Treasury does not advocate purchasing or leasing. Local budget owners make decisions. Treasury provides policy, process, advice, supports and tools. Liquidity • Budget management • Align costs with incremental usage • Avoid tying up cash in depreciating assets Economics • Less expensive than buying • Greater flexibility than buying • Outsourcing management of residuals to best local lessor • Improve ROA and ROE Why budget owners choose leasing:
- 16. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 16 No Standardized Lease vs Buy Corporate Treasury Local Business Units Empowered to make leasing decisions Lease versus Buy Tool Inconsistently used by various business units CHALLENGE#1
- 17. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 17 No Clear Owner for Leasing Accounting Finance Treasury Corporate IT Procurement Shared Services CHALLENGE#2
- 18. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 18 Insufficient Competition Insufficient competitive bidding to reduce the lease price 12 24 36 48 60 Example -‐ 48 Month Lease Relationships with captive lessors was too tight CHALLENGE#3
- 19. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 19 Considerable Evergreen Payments 12 24 36 48 60 Example -‐ 48 Month Lease No end of term process resulted in evergreen leases Forced buyouts because could not return on time CHALLENGE#4
- 20. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 20 Equipment Lease Management Cummins Equipment Lease Management Strategy
- 21. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 21 Equipment Lease Management Strategy Global Leasing Process Centralized Controls Single Lease Database Global Leasing Database
- 22. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 22 Executive Sponsorship CFO (Executive Sponsor) Treasury Procurement Accounting Shared Services Corporate IT BEST PRACTICE #1 Treasury Took a Leadership Role Across the Various Stakeholders
- 23. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 23 We Needed More than Software Equipment Lease Management Incentives Training Procedures Controls Software BEST PRACTICE #2
- 24. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 24 Two Very Different Types of Leases Real Estate Leases Equipment Leases Stakeholders Counter Parties Processes & Controls Reporting & Metrics Stakeholders Counter Parties Processes & Controls Reporting & Metrics BEST PRACTICE #3
- 25. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 25 Our Lease Collection Process CFO Shared Services English Translation Lease Database Business Unit Business Unit Business Unit Business Unit Business Unit Business Unit Request for Leases Leases
- 26. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 26 We Underestimated Our Leases 2500 Leases 7400 Leases
- 27. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 27 New Information Flows Procurement Applications Asset Management ERP Applications Lessor Accounting Systems Purchase Request Purchase Order Cost Center Governance Upgrades Moves Adds Changes End of Term Returns Buyouts Renewals Journal Entries Amounts Due Allocations Corporate Hierarchy General Ledger Codes Cash Disbursement Info Moves, Adds, Changes End of Term Origination Data & Documents
- 28. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 28 Reducing Evergreen Costs Oldest Leases Largest Leases Lease Database Lessors Lessors Lessors Renew, Return, Buyout Evergreen Leases Identify Most Expensive Leases BEST PRACTICE #4
- 29. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 29 New Lease versus Buy Process Business Unit Business Unit Business Unit Business Unit Business Unit Business Unit ARF ARF ARF ARF ARF ARF FAS 13 Test Lease vs Buy Analysis FX Rates Interest Rates WACC IBR Asset Request Forms Lease versus Buy PDF BEST PRACTICE #5
- 30. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 30 Competitive Sourcing Process Lease vs Buy Generate RFP Match Lessors Competitive Bidding Compare Offers Award Business BEST PRACTICE #6 Savings of 6% Achieved Through Introduction of Competition
- 31. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 31 Global Lessor Network Captive Vendor Finance Independent Lessors Banks Business Unit Business Unit 500 Lessors Competitive Bids for Material Handling Manufacturing Equipment Industrial Equipment Office Equipment Aircraft Trucks Automobiles Computers
- 32. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 32 Tracking Throughout the Lifecycle Location Change Cost Center Change Ownership Change Buyout Renewal Return Always Up-to-Date Equipment Lease Database Tracked at Portfolio, Schedule and Asset Level
- 33. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 33 Since the Start of the Project New Leases Sourced Lease vs Buy Analyses Fewer Leases (Evergreen) Assets Being Managed Leases Processed 73 8000 4900 56,000 9,000
- 34. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 34 The Return on Investment Competitive Sourcing 8% Savings On Average 73 Events across 26 Countries Evergreen Payments Dropped from 18% to 8.5% Unintended/Unplanned Fees Dropped 50%
- 35. Cummins Case Study - Implementing a Global Equipment Lease Management Program Slide 35 Get an Executive Briefing • Equipment versus Real Estate? • Accounting Issue or Data Issue? • ERP, Spreadsheet or Leasing Application? • Comply or Transform? Five Steps to Understand the Impact of the New Lease Accounting Standards